@fBoyle-- You can decorate your diary however you want. But since it will be shared with your friend, you might want to concentrate on things that you both love. You could even put a picture of both of you, but maybe in the inside cover because this is a private diary.
How often you exchange it depends on how frequently you meet. If you meet at school, you could exchange it everyday or once a week. It could be more or less frequent depending on what you guys want. It's your diary and your rules.
There is also an exchange diary application online now that people can use. The idea is the same, the only difference is that the people you select have access to it whenever they want and no one else has access. There won't be any fights over the diary. But it does require access to a computer, so I think that this is better for college students.